Monday was one of the days in which we get to see two sides of the same economic picture in manufacturing. The PMI Manufacturing Index and the Institute for Supply Management (ISM) each released their manufacturing data for the month of March.
While both reports signaled growth, there is a mixed bag on how the overall indexes looked. That said, prices of materials and labor trends both still look higher.
The March PMI Manufacturing Index from IHS Markit came in mixed at 55.6. That’s still above the 55.3 reading for February but was a tad lower than the Bloomberg consensus of 55.7. This is just one-tenth of a point lower than the flash estimate from mid-March and was highlighted by strong new orders and export orders. That said, it was a three-year high on the expectations, along with higher input costs as companies worry about tariffs at the same time they are seeing higher raw materials costs.
In a wrap, the IHS Market data showed that output and new orders continued to increase markedly in March, while input costs rose to the highest levels going back to November 2012. While talking about optimism rising, the final PMI data noted risks and caution about tariffs by saying this:
However, recent tariff announcements were already reported to have added to inflationary pressures, and also led to the stockpiling of goods expected to rise further in price in coming months. Input cost inflation consequently hit the highest since 2012. Increased costs were often passed on to customers, meaning prices charged for goods at the factory gate showed the steepest rise in over four years.
The ISM showed a lower reading on its March manufacturing index, falling to 59.3 from 60.8 in February. Bloomberg had called for a reading of 60.0 in its consensus estimate.
March’s 59.3 reading signaled that new orders, production and employment are all still growing, while the supplier deliveries are slowing at slower rate and the backlog of orders was more or less the same. The report further showed that raw materials inventories are growing at the same time that customers’ inventories are too low. And even while exports and imports are growing, prices are still increasing at a faster rate. Of the 18 manufacturing industries, 17 reported growth in March.
The Employment Index registered 57.3%, a decrease of 2.4 percentage points from February. The Prices Index was up 3.9 points from February at 78.1% and indicated higher raw materials prices for the 25th consecutive month. The Prices Index is now at the highest level since April 2011.
This is one of the catch-22 scenarios in certain strength in economic reports and a weak stock market where growth concerns are cropping up. Two views are still showing strong economic reports with growth, but perhaps at lower growth overall, at a time when prices for labor, inputs and goods are rising.